Page 277 - Special Topic Session (STS) - Volume 3

STS544 Baoline C. et al.

Nowcasting advance estimate of U.S. quarterly
personal consumption of services
Baoline Chen, Kyle Hood
Bureau of Economic Analysis Washington, DC 20230

Abstract
This study evaluates two nowcasting techniques—the general bridge equation
framework and bridging with factors model—for compiling advance estimates
of personal consumption expenditure (PCE) of services in the U.S. national
accounts. The proposed approaches use current and lagged monthly and
quarterly information to provide more accurate information on the longer-
term dynamics and short-term movements in the quarterly target variables. In
addition to the monthly indicators assigned to each component, the bridging
with factor model employs common factors extracted from a set of all
available monthly price and quantity indicators for the service sector to
provide general information on the economic and business conditions of the
sector. We apply the proposed approaches to the detailed components of PCE
services with the objective of reducing revisions in the advance estimates that
occur when quarterly information becomes available. We measure
improvement in accuracy in terms of reduction in the root mean squared
revision statistic.

Keywords
National economic accounts, Now-casting, Bridging with factors, Real time
data

1. Introduction
For each quarter, the U.S. quarterly GDP is released three times with a one-
,two- and three-month delay, respectively. The first or “advance” release is
roughly one month after a quarter has ended. The second release is roughly
two months after a quarter has ended and the third and final release is roughly
three months after a quarter has ended. The first and second releases are
primarily based on selected monthly indicators because quarterly source data
for the GDP components are not yet available. By the time the third estimates
are being compiled, quarterly source data have become available. Because of
delays in the quarterly source data needed for compilation, early releases are
often later revised. Revisions for certain components may sometimes exceed
5%, especially during periods of rapidly changing macroeconomic
environments.
Among the major components of GDP, personal consumption expenditure
(PCE), which consists of PCE goods and services, constitutes two thirds of total

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